PrimeGlobal CEO Steve Heathcote explains how member firms are offering a range of services – including corporate recovery, restructuring, insolvency, business valuation and forensics – to help position accounting firms as business architects, providing advice to focus on building the parts of a business that have the capacity to prosper in the future
Businesses worldwide face huge challenges which require hard decisions about their ongoing viability. To build back better, a business needs to have long term resilience, be able to anticipate demand, have the capacity to be agile and an ability to scale.
Entrepreneurs have the drive and creativity to adapt and find new opportunities. However, businesses often do not have the know-how to make it happen.
PrimeGlobal member firms offer a range of established services to help, including corporate recovery, restructuring, insolvency, business valuation and forensics. However, it has been critical for firms to understand what is unique about each business and blend their services accordingly. Firms are increasingly acting as business architects and structural engineers, providing advice to focus on building the parts of a business that have the capacity to prosper in the future. Over the next stages of the pandemic, and recovery, this role will be even more critical as businesses face fundamental choices.
Making a difference
Over the course of the pandemic, firms have helped businesses stabilise their operations. Tom Murray, partner at Irish firm Friel Stafford, compares his firm’s role to that of an air traffic controller.
He notes: “We have helped firms understand and anticipate the danger ahead, moving them into a holding position – helping them streamline, receive government support and reduce cost, so they are in the best position as the fog begins to clear.”
Philip Armstrong, restructuring advisory partner at UK firm FRP, observes that government support has helped to prevent a significant rise in insolvencies. This has provided an opportunity to help business anticipate and adapt. FRP’s ‘Review. Adapt. Evolve.’ solution has helped business leaders prepare for the future by tailoring advice from a range of specialists. Support has included helping businesses focus on their core proposition, renegotiating debt and obtaining additional equity.
For some, priorities have changed: they have considered options to realise the value of their business. Advisory firms have supported owners to secure sales of assets which then help to build other growing businesses. Murray believes advisory firms play a crucial role to help recycle business, so assets are in the right place to meet future demand.
Advisory firms are proud of the difference they have been able to make during the pandemic. Armstrong highlights how FRP helped save viable businesses and keep people in their jobs. One example is UK restaurant chain Carluccio’s, where FRP secured a sale of 31 sites – saving 872 jobs.
Richard Pollack, director-in-charge of forensic and advisory services at US firm Berkowitz Pollack Brant, comments that the firm was able to complete several equity sales and help creditors recover debt throughout the pandemic. Miguel Angel Sepúlveda González, managing partner at Mexican firm Traust, notes that his firm has helped clients transform their finance functions so that they are able to get up-to-date information. This has enabled businesses to control cash and develop essential financial scenarios.
Businesses are going to be facing huge turbulence in the coming months, as government support diminishes, landlords take enforcement action as rental holidays end, and banks get tougher on credit terms. In addition to having less financial support, businesses will have to start paying back debt generated through government support schemes, while operating with less revenue and reduced staff. The environment will continue to be uncertain and volatile. There is a risk of a huge number of insolvencies impacting thousands of workers.
Armstrong comments that there is clearly a problem if costs are not matched by operating revenue because of the need to pay deferred liabilities that have built up over the pandemic. The media often comments on the risk from unviable companies having been kept alive through government funding. However, there is a bigger risk that good companies will not be able to survive because of insufficient working capital.
Advisory firms can help ensure that business has a strong understanding of working capital requirements; adequate cash will buy time and allow for more options. Advisory firms can create forecasting models to anticipate pressure points, stress-test and identify solutions.
Murray comments that there could be a significant increase in demand as lockdown restrictions reduce and consumers rush to enjoy services that have been denied for so long. Businesses need to avoid overtrading, but also ensure that they can scale up securely to meet demand.
Sepulveda feels that his firm is ready to complete business health checks, helping firms anticipate and pivot its business to meet new demand. He is proud of how it has helped manufacturing clients move production to support the health sector. Business will need help to operate with agility as conditions continue to change rapidly.
A key consideration for businesses is to consider whether releasing equity will provide them with capital to overcome short-term challenges and respond to opportunity. Private equity has significant levels of capital to invest, which is likely to be released as lockdowns eases. This could allow businesses to obtain the capital they need and build back for the long term. Many business owners fear losing control if they sell equity; however, as Armstrong says: “100% of nothing is a lot worse than 80% of a very strong business.”
Advisory firms help a business assess whether to divest non-core parts of their operations in cases where it will reduce cost and help focus on building the core business. When attractive assets are put on the market, investors are moving quickly.
For some business owners an exit route might suit their position. Advisory firms provide advice to ensure a successful outcome for the owner and the long-term viability of the business.
The circumstances of each business are different, advisory firms understand the unique needs of the owners and business and assign staff with the right experience across service lines to help. To attract the capital needed to build for the future, the firms help ensure that a business can demonstrate it is resilient, the earnings are maintainable, and it has the potential to grow.
Ready to build
Advisory firms’ teams have been exceptionally busy over the pandemic. Professionals have worked hard for their clients, working long hours to help them survive and give advice to help them adapt and remain viable. Business will need their help more than ever over the coming year. It is critical, therefore, that the firms’ teams feel energised and are ready to support business.
Murray notes that they have played an important role to “talk owners down from the ledge, providing encouragement, empathy and counselling”. Ensuring that the team feels energised and equipped to do this is important.
Pollack agrees, noting that the biggest impact they can have for their clients, and wider society, is to focus on their people, so they are ready to support clients.
He says: “Our people are what makes the difference. From the start of the pandemic, we ensured they felt secure in their jobs and despite uncertainty we did not reduce staff – in fact, we have recruited. We ensure staff have access to mentors and coaching so they never feel alone. We have created a team spirit through regular meetings and having fun – for example, taking part in virtual escape rooms. The whole team share a collective passion and celebrate success together.”
The focus on team building within advisory firms is essential for well-being and to create a collaborative culture which brings together the right expertise to support clients.
Prepare to act
For business it is important to act now to be ready for the challenges and opportunities ahead. Engaging an advisory firm gives time to assess the issues and consider a range of possible options.
Armstrong uses the analogy of pruning plants – removing dead branches and leaves to create light and oxygen so other plants can grow. The firm will help business look at the big picture and align capital and attention to the parts of the business which will flourish. He notes that they help negotiate win-win arrangements; for example, rent payments linked to revenue – the rent drops in difficult times and increases when the business is growing. The landlord maintains reliable tenants, and the business can manage its working capital effectively.
Sepulveda and Murray comment that it is critical businesses speak to firms as early as possible, to ensure they can work on scenarios together. Pollack notes that being a member of PrimeGlobal is key, as the association enables his firm to connect and collaborate with other firms to provide clients with the advice, expertise and help they need.
The critical role advisory firms have to build viable businesses is not always visible or well understood. Advisory firms help to calm even the most severe of storms. They deserve recognition for the essential role they play. We can all be confident about the future, knowing these firms are ready to work side by side with business.
During difficult times, the whole accounting profession can be proud of the difference it is making.